The fight for global economic prosperity - a losing battle?

Introduction

For many years now, each country of the world tries to grow in their economic status. One cannot fault attempts to improve the economy because efforts have been made across board. But the reality remains that many countries seem to be stuck in that status of 'growing or improving economy'. Unfortunately, recent studies seem to give no hope as to steady progress in terms of economic prosperity for many countries of the world.

In a recent comprehensive report by the World bank, more than 6 billion people are living in countries described as middle-income. These countries have fought hard to upgrade to a status of high-income economy with limited or no progress to that effect. This World Bank report thus described them as being stuck in that seeming economic prison without any clear hope of getting unstuck. In this article, we take a look at key factors that keep many middle-income economies from upgrading to a high-income one. Maybe we will also look at a few recommendations to to help them get unstuck in that trap.

108 countries still at middle-income level

The World Bank report explains the level of economic stagnation with stats provided. Many countries of the world - up to 108 countries - are still described as middle-income and they are trapped in this category. The figure is valid as at December 2023. Middle-income countries are categorized as such based on the projected annual income of citizens of those countries. Any economy whose citizens earn between $1000 and $13,000 per annum are categorized as middle-income.

The World Bank study finds that once countries grow from low-income to middle-income, it takes a lot of time before they move up to high-income level. This is often because of the various economic models they adopt which do not seem to go well with modern realities on ground. About 34 countries have been able to upgrade from middle income to high-income in the past 24 years. But a very large number of more than 100 have found it difficult to brake out from the trap. This is a problem that needs world governments to change or adapt their economic growth models in order to have a chance of upgrading in less time.

So it is important to understand why many countries of the world are largely stuck in an uncomfortable economic group for a long time. Unravelling this challenge is crucial to ensure global economic prosperity. Otherwise, it is a losing battle if trends continue the way they are today.

Why stuck in the trap?

The report tries to uncover why many countries of the world in the middle-income range like China finds it hard to obtain high-income status. Many challenges were listed by the World Bank study, but let us look into just one of them.

One of the identified challenges to economic growth is increased elderly demographics. When a country has more active and vibrant young people in the population, they are more likely to work and contribute to the growth of the economy. Each person is likely going to be an important unit of industry or workforce. Hence, they have valuable input to add to the overall economic growth of the country. With more senior citizens, there is some form of economic drag that stalls growth.

With the population mainly made up of older people, the number of people that can work productively reduces. With fewer people contributing to the work force, there would be little to stimulate dynamic growth of the economy. Beyond having a shrunk or shrinking workforce, other problems come with an aging population. For example, older people invest less because they are no longer earning much income. They are at the period of their lives where they rely on investments made earlier in life and any support from the government.

Beyond putting lesser value into the economy, an economy made up mainly of older people also puts a strain on public funds. For example, the government would have to create significant budget to take care of more older people. It is very likely that some of these older people still work. But majority of them would be nearing the end of the work-life or already retired. So a significant amount of government funds would be spent on retirement projects such as pensions, healthcare, adult-care homes and things like that. So when funds that should be invested in areas like education and infrastructure are diverted to caring for senior citizens, this keeps some countries stuck in the middle-income trap.

There are many other challenges identified by the study which we may not go into detail of them. For example, many countries are deeply in debt. As a result, servicing the huge loans often taken by previous government administrations take away significant funds that should be channeled into various sectors for economic growth.

Escaping the trap

It is possible to escape the trap of middle-income status, but that wont be easy. Check out the statement by the Gill of the World Bank group:

The battle for global economic prosperity will largely be won or lost in middle-income countries. But too many of these countries rely on outmoded strategies to become advanced economies. A fresh approach is needed: first focus on investment; then add an emphasis on infusion of new technologies from abroad; and, finally, adopt a three-pronged strategy that balances investment, infusion, and innovation. source

As you can see above, one of the recommendations beyond just investment is to adopt new technologies. Many countries in the group pour in too many resources into developing the investment sector, but that has not worked wonders. So investing in new and emerging technologies would go a long way in pushing the economy up the status ladder. One such technology is artificial intelligence.

Artificial intelligence is currently causing disruptions in all works of life. One area that it could help a middle income country is in increasing productivity and saving costs of production. With AI, many companies are achieving a lot of work while cutting cost on labor. AI can design graphics, do the job of a customer representative, make calls and other work. These human labor is reduced as AI takes charge, and also increasing the amount of work done in record time.

For now, AI is relatively untapped in many middle-income countries. So if they apply the recommendation to adopt such technologies like AI, blockchain and cloud-computing resources, the economy would grow faster and achieve a higher status.

Finally

Global economic prosperity is a possibility although it seems slow for now. Implementing innovation and shifting strategies would go a long way in the effort to grow. You can learn more about this subject in the World Bank report referenced in this article. Check the links below.

• World Development Report 2024
  THE MIDDLE-INCOME TRAP
• “Middle-Income Trap” Hinders Progress in 108 Developing Countries

note: thumbnail is frompixabay

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